The Government Wins & We Lose In The Coming Debt Ceiling Drama

The coming manufactured debt ceiling crisis isn't far off and there is not doubt this will be all we hear about in the coming days right up until the very last moment it can be talked about by both Democrats and Republicans. Today former Congressman Ron Paul spoke out on the issue, declaring, "This is business as usual in Washington. Democrats literally do not believe we have a deficit and debt problem, and reliably propose greater borrowing and spending. Republicans talk a good game when it comes to government debt, but have no credibility to argue against deficits or abuses of executive power. Brinksmanship ensues, and ugly compromises are reached at the 11th hour. We all lose as the endless borrowing and money printing further erode our dollar and our economy."

Paul, in his "Texas Straight Talk," said that Barack Obama had warned that he would not negotiate on the debt ceiling.

Last week it was Barack Obama who issued the threat that he will not negotiate when it comes to raising the statutory debt limit. "They will not collect a ransom in exchange for not crashing the American economy," Obama said during his final news conference of his first term in office. "The full faith and credit of the United States of America is not a bargaining chip."

"It would be a self-inflicted wound on the economy," Obama said. "It would slow down our growth and tip us into recession. To even entertain the idea of this happening is irresponsible. It's absurd."

"We've got to break the habit of negotiating through crisis over and over again," he said.

"The American people do not support raising the debt ceiling without reducing government spending at the same time. The consequences of failing to increase the debt ceiling are real, but so, too, are the consequences of allowing our spending problem to go unresolved," said House Speaker John Boehner. "Without meaningful action, the debt will continue to act as an anchor on our economy, costing American jobs and endangering our children's future."

"I do know that the most important issue confronting the future of our country is our deficit and debt," said Sen. Minority Leader Mitch McConnell. "So we are hoping for a new seriousness on the part of the president with regard to the single biggest issue confronting the country, and we look forward to working with him to do something about this huge, huge problem."

Paul, in his usual fashion took the opportunity to remind Americans about spending and debt and use a prime example of how Keynesian economist Paul Krugman wants to ignore the problem and put forth an unworkable "solution." Paul writes,

Keep in mind that the federal government relentlessly spends about $100 billion more each month than it collects in taxes. This means roughly 40% of every dollar Washington spends is borrowed, to be “paid back” only in highly devalued, newly created money. Ultimately this can only lead to the destruction of the US dollar, as history plainly teaches. But in the face of this reality Obama just shrugs, turning to demagoguery and talk of little old ladies’ Social Security checks. Like Obama, far too many Americans view federal debt as a nonissue. Consider Paul Krugman, America’s most reliable Keynesian economist and a beloved figure among mainstream journalists. He recently wrote an article about the debt limit issue, in which he discussed a controversial proposal to have the federal government simply create a platinum coin with a face value of $1 trillion:

“Here’s how it would work: The Treasury would mint a platinum coin with a face value of $1 trillion (or many coins with smaller values; it doesn’t really matter). This coin would immediately be deposited at the Federal Reserve, which would credit the sum to the government’s account. And the government could then write checks against that account, continuing normal operations without issuing new debt.”

To be fair, Mr. Krugman acknowledges that minting such a coin would be an accounting “trick,” but he is dead serious about this option for the Obama administration. This then is the state of modern economics discourse in America, where a respected New York Times economist literally can propose creating “money for nothing” and have the idea taken seriously.

Krugman’s suggestion is just another variant of the endless stimulus proposals, which purport to create greater aggregate demand in the economy by creating more money. Whether this is done by the Fed or the Treasury is of little importance, as long as government is creating demand-side “growth,” however artificial.

Paul then concludes by stating the obvious truth that is readily seen by anyone paying attention. "Fiat currency is not wealth, and the creation of more fiat dollars does not mean that more rice, steel, soybeans, Ipads, or Honda Accords suddenly come into existence," he writes. "The creation of new fiat currency simply strengthens a fantasy balance sheet, either by adding to cash reserves or servicing debt. But this balance sheet wealth is an illusion, just as the notion we can continue to raise the debt limit and borrow money forever is an illusion."

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